The applicable deduction requirements must be complied with no later than the last day of the tax year to which the deduction applies, although the invoice supporting the expense may be provided up to the date on which the tax return for the period in question is filed (or comes due). An expense invoice must contain a date within the year for which the deduction is claimed. Deductions for certain business expenses are limited (e.g. business meals, use of company-owned cars).
Straight-line depreciation is permitted at the rates specified in the law (i.e. estimated lives for assets are 20 years for buildings, 3.3 years for computers, 4 years for cars [the deductibility threshold for cars has been raised from MXN 130,000 to MXN 175,000, for electric cars the limit is MXN 250,000 starting from 2017], 10 years for certain M&E, etc.), and the deduction may be increased by applying the percentage increases in the NCPI from the month in which the asset was originally acquired. When an asset is disposed of or becomes useless, the remaining undepreciated historical cost may also be deducted, after application of the appropriate inflation adjustment factor to the undepreciated historical cost. Starting from 2016, companies, including those dedicated to transportation infrastructure and those that invest in hydrocarbon-related activities and the generation of electricity, who have obtained revenues in the prior tax year up to MXN 100 million, can apply an accelerated depreciation (i.e. lump-sum deduction) for investments in new fixed assets that were acquired in the last quarter of the 2015 tax year, or in 2016 or 2017. The accelerated depreciation rate varies from around 60% to 90% depending on the type of assets and the year of acquisition (i.e. 2016 or 2017). Intangible assets for the exploitation of goods that are in the public domain, or for rendering public services under concession, are considered deferred assets (i.e. not deducted as incurred). Therefore, these assets are subject to amortization for income tax purposes. Specific annual depreciation rates are established for goods used in certain industries.
Goodwill is a non-deductible item for Mexican tax purposes, and the corresponding input VAT (if any) will not be creditable. Start-up expenses Start-up expenses incurred prior to the commencement of operations may be amortized at the rate of 10% per year, after applying the adjustment factors. Interest expenses In general terms, interest expenses are deductible items if, among others, the principal is invested in the main activity of the Mexican taxpayer, withholding obligations are complied with, informative returns disclosing information related to the loan and transactions carried out with related parties are filed, thin capitalization rules (3:1 debt-to-equity ratio) are satisfied, the transaction is at arm's length, and the interest does not fall into the deemed dividend criteria (see the rules for the deductibility of interest payments at the end of this section).
Bad debts may be deducted on the earlier of the date on which the debt prescribes or the date on which the taxpayer substantiates the practical impossibility of collection, as defined by the law, among other detailed rules. Charitable contributions The maximum amount for deductible donations is limited to 7% of the taxable income of the previous year. Fines and penalties In general terms, fines and penalties are non-deductible items for income tax purposes, except interest for underpayment of taxes. Taxes In general, all federal, state, and local taxes levied on a company (not including those required to be withheld from other parties) represent deductible expenses for CIT purposes, with the following exceptions: • CIT. • Federal VAT and excise tax when the company is entitled to credit the tax. • Taxes on acquisitions of fixed assets and real estate, which must be capitalized and deducted as part of the total cost of such assets to be depreciated.